IPTI | Update on U.S. & EU Property Tax Issues: May 2022

The EACC, in partnership with the International Property Tax Institute (IPTI), wants to keep its members up to date with the latest developments in property taxes in the USA and Europe. IPTI has put together below a selection of articles from IPTI Xtracts; more articles can be found on its website (www.ipti.org).

United States

New York: City Council considers fat tax cut on hotels

The hotel industry is still struggling to recover from the effects of the pandemic, and its lobbying group has an idea for the city to consider: lower the occupancy tax rate.

The Hotel Association of New York City, which represents nearly 300 hotels across the city, has the City Council considering a steep cut to the occupancy tax rate on hotel stays, the New York Post reported. The association is pushing the Council and Mayor Eric Adams to slash the rate to just below 3 percent, about half the current rate of 5.9 percent.

Such a steep reduction of the tax rate could be challenging for the city to stomach, even if it spurs the recovery of the hotel industry. The mayor’s preliminary budget plan forecasts $255 million in revenue from the tax during the current fiscal year. Some politicians argue that a cut to the occupancy tax rate could help the industry recover ahead of schedule, though.

“What the hotel industry is asking for isn’t too big a lift,” council member Amanda Farías, who chairs the legislature’s economic development committee, told the Post. “We don’t want to wait until 2026 for a comeback.”

The Hotel Trades Council, which represents hotel workers and endorsed Adams, is also pushing for various relief measures, ranging from a temporary reduction in assessed property values to a waiving of the 18 percent interest rate on delinquent property tax payments.

The mayor’s office did not comment. It has previously shown support for relief measures for the hotel industry, including temporarily suspending hotel property tax debt interest.

Hotel occupancy looked to be on the rise before the omicron variant complicated matters. In the week ending Dec. 11, occupancy hit 81.5 percent, the highest since the onset of the pandemic. But it has dropped sharply since then. During the week ending on Feb. 19, hotels averaged a 56.5 percent occupancy rate, according to STR data. The occupancy rate dipped as low as 40.3 percent in early January.

Pennsylvania: Owners of Downtown Pittsburgh skyscrapers, other commercial properties could benefit from assessment appeals deal

A recent deal involving Allegheny County property assessment appeals this year not only could have far-reaching implications for thousands of homeowners but for the holders of some of Downtown’s biggest skyscrapers and other pricey commercial real estate. The April 27 consent order already has local school districts and municipalities nervous about the implications for their budgets. And it could have even bigger ramifications if the owners of some of the county’s most expensive properties go after the same tax breaks that homeowners could receive.

Jonathan Kamin, a Downtown attorney who represents commercial property owners, said he already has close to a dozen clients who are looking at potential appeals because of the situation. “There’s definitely an opportunity for a commercial property owner who has a current or high assessment on their property to get some relief,” he said.

And since many of those properties generate significant revenues for the municipalities and school districts, changes to those values — and the taxes paid — could add to the woes potentially facing schools and municipalities.

Janet Burkardt, a solicitor for the Pittsburgh Public Schools and other area districts, said the deal could put taxing bodies at risk of “crippling refunds” in taxes. “Our clients are extremely concerned, to put it mildly. This could devastate their finances, and they have no way to recover,” she said.

At issue is the consent order, in which the county agreed to re-examine the way it coded some 2020 property sales data that will serve as the basis for calculating assessments during appeal hearings this year.

Those sales are used to determine what is known as the common level ratio, a state calculation used in appeals to account for widening gaps between assessed values and current sales prices since the last countywide reassessment a decade ago. The ratio is used to figure out the value at which a property will be taxed. For 2022, the county had intended to use 81.1%.

But John Silvestri, the attorney who filed the lawsuit that resulted in the consent order, believes the ratio could drop to as low as 64% once the county completes its re-examination and re-codes sales that previously were determined to be invalid.

Just how sweeping the ramifications could be depends on what happens after the county determines the new ratio. The plan right now is to use it in 2022 appeal hearings, which could help out new homeowners whose properties were appealed by districts or municipalities based on the sales price. It also could result in savings for other real estate under appeal.

But Ms. Burkardt has argued that applying the new ratio in appeal hearings this year is unfair to taxing bodies that have already based their 2022 budgets on the premise that the 81.1% ratio would be in place.

She believes that Common Pleas Judge Alan Hertzberg, who is overseeing the case, should wait until 2023 to apply the new calculation.

“Half of the year is over. To make changes to something as important as the common level ratio midyear upsets the whole system,” Ms. Burkardt said.

The even bigger wild card is whether either Judge Hertzberg or the county gives property owners another chance to file appeals in 2022, as Mr. Silvestri wants. The deadline for filing this year was March 31.

If the judge or county does so, that could open the floodgates for other homeowners, as well as commercial property owners, to appeal to get the recalculated ratio — particularly if it is substantially lower than the current 81.1%.

That could result in significant tax savings. For instance, a commercial property valued at $100 million would be taxed at $81.1 million using the current ratio. But if the ratio does end up being 64%, it would be taxed at $64 million.

All a property owner would have to do is to convince the assessment appeals board that the real estate changed value, no matter how slightly, to get the new ratio.

“I think you’re going to see that commercial taxpayers are going to take a second look [at appealing] as a rule,” said Sharon DiPaolo, an attorney who represents such property owners.

Mr. Kamin said many commercial property owners have already been impacted by the fallout from the pandemic.

“When you add [the ratio] with COVID, it’s very clear that all of the commercial properties are overassessed,” he said.

“The commercial industry will just tear away at this,” added Mike Suley, a former county assessment director and appeals board member who served as a consultant in Mr. Silvestri’s lawsuit.

Giving property owners a second chance to file 2022 appeals also could benefit homeowners, Mr. Suley noted — particularly those who are likely over-assessed if they live in neighborhoods where property values have been declining.

But such an onslaught, Ms. Burkardt stressed, could play havoc with municipal and school district budgets. “It will devastate the tax base of the entire county,” she said.

One reason courts seldom apply rulings retroactively, she argued, is that “people get hurt who are playing by the rules.” Applying the new ratio in 2023 rather than this year would create “a fair playing field for everyone,” she added.

Those on both sides of the issue acknowledged that the fallout — particularly if the common level ratio drops substantially and people have a second chance at appealing — could result in tax increases next year in some districts and municipalities.

“If there is a significant reduction [to the common level ratio], I think you likely will see a significant number of all property types, including commercial, file appeals. I also think taxing bodies will also look at increasing the millage rate,” said attorney Jason Yarbrough.

And if that happens, it could open the door for even more appeals in 2023 as property owners try to get the lower common level ratio to blunt the impact of a tax hike.

“In that case, it won’t be a school district or municipality chasing sales,” Mr. Yarbrough said. “It will be property owners filing to get reductions to avoid a tax increase.”

Some — Ms. Burkardt, Mr. Suley and Mr. Kamin among them — believe the ultimate solution is another countywide reassessment. But Allegheny County Executive Rich Fitzgerald has vowed that he won’t do one before he leaves office at the end of 2023.

In the meantime, property owners and taxing bodies and those representing both are left to figure out exactly how the consent order will play out — and what the consequences will be.

“It is screwed up the entire way around. That’s a true statement,” Mr. Kamin said.

Colorado: Governor, lawmakers unveil plan to slash property taxes by $700M to head off business group’s ballot measure

The relief would last two years. Gov. Jared Polis said his plan is to use that time to find a longer-term solution to Coloradans’ rising property tax bills

Colorado property owners would get a $700 million break on their rising tax bills over the next two years under a plan unveiled Monday by Gov. Jared Polis and state lawmakers that’s aimed at preventing a business group from pursuing an even larger reduction in November.

The legislature, in a deal reached in the final days of Colorado’s 2022 legislative session, would also spend $400 million from the general fund to blunt the financial effect of the reduction in expected taxes on schools and local governments, which are primarily funded by property tax revenue.

“We know every part of the state is seeing higher home values and costs,” said House Majority Leader Daneya Esgar, a Pueblo Democrat. “We’re doing this legislation to make sure that our economy can continue to grow without significant increases in property taxes and we’re making sure that we can continue to put more money in classrooms.”

The agreement, which is set to be introduced in the form of a bill, is the culmination of months of discussions between the governor’s office, Democratic leadership at the Colorado Capitol and Colorado Concern, a non-profit representing the state’s business executives that was pursuing a measure on the November ballot that would have capped property valuation increases at roughly 3% for taxation purposes.

The Colorado Concern initiative was forecast to reduce expected property tax revenue by $1.3 billion in its first year, a hit that opponents warned could be catastrophic for schools and local governments. Colorado Concern pitched the measure as necessary to blunt the economic effects of inflation and the general rising cost of living in Colorado.

Colorado Concern has agreed to stop pursuing its ballot initiative as long as the proposal unveiled Monday doesn’t change and passes the legislature.

“Colorado Concern is focused on tax relief for property taxpayers and improving our current property tax system to make it simpler and more predictable for both residential and business owners,” said Mike Kopp, who leads Colorado Concern. “The governor and many in the legislature are focused on similar objectives and, with a little luck, our objectives will overlap and we will not need to proceed with a ballot measure. “

Polis, in an interview with The Colorado Sun, said that “by providing this relief valve and immediate property tax relief for every Coloradan, we’ll address some of the concerns from several entities that have filed property tax-related initiatives.”

The governor said he intends to begin negotiating a longer-term property tax relief mechanism.

“We’re confident that … we’ll be able to work with the business community, with school districts (and) with many others to figure out what a long-term solution looks like,” Polis said. “This is a two-year property relief, property tax cut package. The thought is that during those two years, we will work on what a more permanent solution looks like.”

Here’s how the relief, offered through Senate Bill 238, would work:

• For the 2023 tax year, the residential assessment rate used to calculate how much a residential homeowner owes in property taxes would be reduced to 6.765% from 7.15%. Additionally, the first $15,000 in taxable value of a residential property would be waived.
• For commercial properties, the assessment rate in 2023 would be reduced to 27.9% from 29%. Additionally, the first roughly $30,000 in taxable value of a commercial property would be waived.

Assessment rates are used to calculate how much someone owes in taxes by multiplying the rate by a home’s assessed value, which is determined by a county assessor. What a property owner pays is then determined by the mill levy rate. A mill is a $1 payment on every $1,000 of assessed value.

The reduction would mean that a residential property owner who owns a home with an assessed value of $300,000 in an area with a mill levy rate 100 would pay $1,963 versus $2,145. The median sale price of a single-family house in Colorado hit $575,000 in March, up nearly $100,000 over the year before. Polis said the average residential property owner in Colorado would save about $260 a year on their property taxes under the change.

In 2024, the rates would go up slightly to match a reduction already approved for the 2021 and 2022 tax years thanks to a measure passed by the legislature in 2021. For single-family residential property owners, the assessment rate would be approximately 6.95%, down from 7.15%. For multifamily residential property, the rate would be 6.8%.

For those who own commercial property used for agriculture and to produce renewable energy, the assessment rate would be 26.4%, down from 29%. Finally, the legislature is proposing to continue a change allowing senior citizens to defer all of the increases in their property taxes until they sell their homes while allowing everyone else to defer any increases over 4%.

Rep. Mike Weissman, an Aurora Democrat working on the bill, said the property tax changes in 2023 aim to help lower- and middle-income Coloradans through the section waiving some assessed value. Without that provision, he argues, well-to-do people would benefit more from the changes.

But Amie Baca-Oehlert, president of the Colorado Education Association, the state’s largest teacher’s union, and Carmen Medrana, who leads United for a New Economy, a progressive group, blasted the proposal and complained that they were left out of its formation.

“We’re disappointed Gov. Polis and legislators are working behind closed doors to cut a deal that would give some of the richest and most powerful special interests fiscally irresponsible, inequitable property tax cuts,” the pair said in a written statement. “… While we’re disappointed in the process so far, we look forward to working with legislators, the governor and other organizations representing working Coloradans as this bill moves forward — and as a permanent solution is debated and designed.”

The bill making the changes is expected to be bipartisan thanks to the sponsorship of Sen. Bob Rankin, a Carbondale Republican.

“This represents a big step forward, I think, on the property tax debate,” said Sen. Chris Hansen, D-Denver. “We think we’ve got something that is really balanced and will provide immediate relief but not cut into K-12 or the other important local services.”

One hiccup in the deal could be how proponents of the proposal plan to spend $400 million to help schools and local governments weather the reduction in property tax revenue.

According to Hansen, half of that money will be spent by the legislature this year through the general fund. The second half will also come from the general fund but will count toward the $1.3 billion to $1.6 billion that is projected to be owed to Coloradans from next fiscal year because of the Taxpayer’s Bill of Rights cap on government growth and spending.

In other words, the legislature plans to use $200 million that would have been refunded to taxpayers toward covering the cost of their property tax reduction bill.

State Rep. Colin Larson, a Ken Caryl Republican who was working on the Colorado Concern ballot measure, said that was a surprise that threatens the delicate deal, which was negotiated in good faith. Larson argues that by using TABOR refund money to blunt the effects of the property tax cut the tax relief plan really totals $500 million, not $700 million.

Polis said the legislation is part of his “saving-people-money agenda” this year that comes as Republicans are hammering him and other Democrats heading into the November election over the rising cost of living. Last week, Polis and Democrats in the legislature introduced a plan to advance refund checks owed to Coloradans under the Taxpayer’s Bill of Rights, which limits government growth and spending. Instead of receiving the checks — which would be $400 for individuals and $800 for joint files — in April 2023, they are now slated to be sent out in late August or early September.

Asked, however, whether the property tax relief would have been brought without the threat of Colorado Concern’s further-reaching ballot measure, the governor didn’t directly answer.

“There’s a lot of thought that’s gone into a comprehensive agenda to save people money,” he said.

Ohio: Significantly Changes Real Property Tax Valuation Procedures, Curtailing Local Governments’ Abilities To Initiate, Appeal, and Settle Tax Valuation Cases

A new Ohio law substantially changes the landscape for real property tax valuation challenges in the state. In general, it substantially curtails school districts’ rights to initiate and appeal property tax valuation challenges. Governor DeWine signed the bill on April 21, 2022. It will become effective on July 19, 2022, and will affect valuation complaints that relate to tax year 2022 valuations.

The following points summarize the law’s significant changes. Each situation is different and may vary based on a variety of factors. We encourage each reader to contact their real property tax attorney to seek advice on their particular circumstances.

House Bill 126 significantly limits school boards’ ability to initiate original complaints against property valuation. Under prior law, school boards could contest the valuation of any taxable property located within their districts. Under the new law, school boards and other political subdivisions may only file increase complaints where:

The property was sold in a recent arm’s length sale that took place before January 1 of the tax year to which the complaint relates;

The sale price exceeds the auditor’s valuation of the property by at least 10% and $500,000.00; and

The board or subdivision adopts a resolution that authorizes the complaint and the board or subdivision provided notice to the property owner at least seven days before the board or subdivision adopted the resolution to authorize the filing of the complaint.

Once effective, Amended Substitute House Bill Number 126 will prohibit private pay settlement agreements, commonly called “direct pays,” as a means of resolving school-initiated valuation appeals. Under prior law, the property owner and the school board could agree to resolve a tax valuation case with the owner paying the school board a sum of money; in exchange, the school board would dismiss its valuation complaint or any appeal relating to the property’s valuation.

The effect of this practice was to benefit the property owners and school boards who were parties to these cases and agreements, while excluding other taxing districts from enjoying increases in revenue resulting from school-initiated valuation complaints. The law’s terms that abolish direct pay agreements would apply to agreements entered into on or after the bill’s effective date, which is July 19, 2022.

The new law will also prohibit school boards and other political subdivisions from appealing county board of revision (“BOR”) decisions to the Ohio Board of Tax Appeals (“BTA”). It is not yet clear what effect the bill would have on an attempt by a school board or other subdivision to appear as an appellee in a BTA case initiated by a property owner, assuming that the school board has filed a counter complaint in response to the owner’s original complaint, or in the situation of a school board-initiated increase complaint that resulted in an owner-initiated BTA appeal.

The law also makes a variety of other procedural changes, including removing the current requirement that county auditors notify school boards of certain owner-initiated complaints, changing the deadline by which school boards may file counter complaints in response to owner-initiated complaints, and requiring county BORs to dismiss government-filed valuation complaints that the BOR does not resolve within a year of filing. The law applies to property tax complaints and counter complaints fixed for tax year 2022 (which would typically be filed between January 1 and March 31, 2023).

EUROPE

Greece: ENFIA smiles for four in five

Millions of property owners will see their dues reduced this year, with only a few facing hikes

The new payment slips for the Single Property Tax (ENFIA), uploaded on the online platform of the Independent Authority for Public Revenue, show reductions that in some cases reach up to 45-50%.

The abolition of the supplementary tax has become obvious for most owners with assets valued at more than 250,000 euros; during the decade-long crisis years it was they who bore the brunt of property tax to help the fiscal adjustment.

Some significant reductions have also been observed for smaller properties, even those whose zone rates posted a significant increase upon the adjustment of the taxable prices known as “objective values.”

However, there are also cases where ENFIA dues have soared this year: This is not only in areas that were not previously included in the objective value system, such as Mykonos, Ikaria, Ithaki and others, but also in the center of Athens, where owners have to pay 50-60% more ENFIA, and in some instances 70% more than last year.

Overall, though, the picture is positive for the vast majority of taxpayers, as the ENFIA bill is lighter this year for four out of five owners. Over 2 million taxpayers saw their dues ease by more than 20%, while another 900,000 have seen them drop by over 30% even though the total value of the real estate assets has grown.

The reduction observed is explained by the expansion of brackets and the abolition of the supplementary tax. For example, the tax rate for zone rates from 1,051 to 1,500 euros per square meter is now at €2.80/sq.m., against €3.70/sq.m. that applied last year, constituting a reduction of 27%.

For zones with rates from €1,501/sq.m. to €2,500/sq.m., the ENFIA rate has been slashed to €3.70/sq.m., while in 2021 zone rates for the €1,501-2,000/sq.m. bracket stood at €4.50/sq.m. and for the €2,001-2,500/sq.m. bracket at €6/sq.m.

It is only 3-4% of property owners who are set to see their ENFIA dues soar this year. Most of them own assets in areas which have seen a major increase in their zone rates or in areas that have just entered the system.

United Kingdom: Queen’s speech ‘disappointing for business rates’ says Colliers

John Webber, head of business rates at Colliers has called the Queen’s Speech ‘disappointing’ in terms of what was announced concerning business rates.

Although absent from the speech itself, the government did confirm a ‘Non-Domestic Rating Bill’ will form part of the agenda during the next Parliamentary session.

The Bill, which will apply to England and Wales, commits to a move to shorten the revaluation cycle from five years to three from next years and will be accompanied by new duties on ratepayers and ‘measures to support compliance’ in what it claims is a bid to improve valuation accuracy and timeliness.

The government is also set to provide relief on rates for a year where increases to rateable value occur as a result of improvements made to a property in a move it says is aimed at boosting investment in properties, and a new 100% relief for low-carbon heat networks.

The Valuation Office Agency is also receiving new powers to provide ratepayers with information on the calculation of their rateable value.

There will also be a ‘tightening’ of appeals against rates based on changing circumstances, with the government relying on the £1.5bn provided in the pandemic support fund to ‘future-proof business rates against further shocks.

“Reading these proposed reforms, feels like careering into a brick wall,” says John Webber. “None of these proposals are new and most were announced in last year’s Budget where they were criticised then for not being radical enough.

“Obviously a three yearly revaluation is to be welcomed, although we would prefer a move to annual valuations so that rates bills give a more accurate reflection of market values. But the new duties on ratepayers will be burdensome, time consuming and costly as we have continually said since they were first announced last year.”

Webber also raised his concerned about the statement concerning ‘tightening’ of appeals against rates based on changing circumstances, commenting: “This sounds ominous. Last year the government effectively denied over 400,000 rate payers the chance to appeal their business rates bills on the grounds of Material Change of Circumstance caused by the impact of Covid 19 and the subsequent lockdowns, through striking such appeals out in one fowl swoop and legislating against them. This was the biggest MCC in history and it was a disgrace that businesses were denied their right of appeal.”

“The £1.5bn COVID-19 Additional Relief Fund (CARF) offered instead has been a joke – not just in terms of the inadequacy in size, but also because thousands of businesses are still waiting to receive support one year on.”

He added, “Yet again the government is missing a golden opportunity to bring about proper business rates reform.”

“There has been nothing said about reducing the business rates multiplier to a manageable 30p in the pound – so that businesses are not straddled with a 50p plus tax, nothing said about reforming the myriad of reliefs that complicate the system and no reassurances to the retail and hospitality sectors that the government won’t bring in downwards transition following the next revaluation in 2023.

“If they did introduce downwards transition, as they did in the last revaluation, this would delay rate bills immediately reflecting the lower rental levels we have been seeing in the sector. This would particularly hit retail in some of the less affluent parts of the country.

“The government must make an announcement about downwards transition soon, particularly as retail businesses are making their business plans now. Without this reassurance the government’s “levelling up agenda” will be meaningless and the high street unlikely to get back on its feet.”

Councils ‘need clarity’ over business rate funding change

Councils have called for clarity over proposed compensation levels after the government announced it will press ahead with plans to remove large telecom companies and railway services from local authority business rates billing lists.

As part of the revaluation of business rates for 2023, the government is set to move assets of large telecom companies and railway services from English and Welsh local authority billing lists to Whitehall, a consultation response on reforms to the central rating list published today said.

The government said it will compensate authorities through business rate retention increases, but experts told PF that councils will need to know how the government calculates compensation paid to them.

Geoff Winterbottom, principal researcher at the Special Interest Group of Municipal Authorities, said: “The only concern that we have got, and have voiced time and time and time again, is that once funds go into the central list it is very opaque about how they are applied.

“Our big fear would the government uses that increased central list funding to reduce support from other resources including the revenue support grant.”

Similarly, Adrian Blaylock, lead revenues advisor at CIPFA told PF that the government’s upcoming consultation on funding will be crucial to giving clarity to how it will compensate councils. He said: “CIPFA has always argued for more certainty in funding.

“These proposals obviously bring less certainty, because we do not know exactly what is going to be moved across and we do not know what the impact is going to be.”

The government said that moving telecoms companies and larger railways to the central list would reduce administrative burden on councils, because these assets often span a number of billing authorities. It added that it will not compensate councils for any Business Rates Supplements (BRS) currently charged on assets that are moved to the central list.

Under the BRS scheme, public bodies can levy an additional charge on larger business properties to help fund infrastructure projects.

For instance, Transport for London has levied a 2p increase on business rates with a rateable value of over £70,000, to help fund Crossrail.

Blaylock said that any assets transferred to the central list could impact on the overall funding available for the affected transport projects.

The response also scrapped proposals to move new mobile phone cells installed as part of the 5G rollout to the central list, after respondents said that authorities are capable of administering these payments.

The government said it will consult on changes to the business rate retention scheme ahead of the 2023-24 local government finance settlement later this year.

Authors:

• Paul Sanderson, President | psanderson[at]ipti.org
• Jerry Grad, Chief Executive Officer | jgrad[at]ipti.org
• Carlos Resendes, Director | cresendes[at]ipti.org

Compliments of the International Property Tax Institute (IPTI) – a member of the EACCNY.